Looking ahead to 2017, milk prices will depend a lot on the level of milk production. Milk production continues to run well above year-ago levels, with October production up 2.5%, according to USDA.
Milk cow numbers have been declining, falling 6,000 head since peaking in August. Of the 23 reporting states, 11 had fewer cows than a year ago, but more milk per cow is driving the increase in milk production. Milk per cow was 2.3% higher than a year ago. Just three reporting states had lower milk cow numbers than a year ago.
Milk production for the year will end up about 2% higher than 2015. While milk cows will average just 0.1% higher, milk per cow will be about 1.7% higher. USDA is forecasting 2017 milk production to increase an additional 2.1%.
“That is a lot of milk,” says Bob Cropp, University of Wisconsin-Madison dairy economist. “But we can expect high milk prices from continued good butter and cheese sales, as well as improved exports as we move through 2017.”
The growth in world milk production has slowed as major exporters — European Union, New Zealand, Australia and Argentina — are experiencing lower milk production, with either declines or small increases for 2017, Cropp says.
“The U.S. is the only major exporter experiencing higher milk production,” he says. “World demand has picked up with China and other major importers being more active.”
This tightening of world supply and demand will reduce the buildup of world surplus, increasing world dairy product prices and making U.S. dairy products more competitive on the world market, Cropp says. World prices are already showing strength. Prices on the Global World Dairy Trade have strengthened in seven of the last eight trades.
Cropp is predicting that the Class III price may be in the high $15s at the start of 2017, in the low $16s by the end of first quarter, in the mid-$16s by second quarter, higher $16s by third quarter and the $17s as a possibility for the fourth quarter.
“The average for the year could be near $16.50, a good improvement over the expected $14.75 for 2016,” he says. This is more optimistic than USDA and some other forecasters are giving. USDA has the Class III averaging from $15.30 to $16.20. But final milk prices will be subject to any small changes in milk production, sales or exports.
Volatile cheese prices have meant volatile Class III milk prices this year. On the CME, 40-pound cheddar blocks averaged a low of $1.32 per pound in May, rebounding to $1.78 in August, only to fall back to $1.60 in October. The result was the May Class III was $12.76, August $16.91 and October $14.82. The good news is that while November cheese prices have had some rather big price increases as well as decreases, overall cheese prices have shown surprising strength in November to the point that the November Class III could be near $16.75.
Source: FarmProgress
Link: http://farmprogress.com/story-milk-prices-expected-rise-17-25-149850